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In today’s issue, President Trump pushes a tougher trade agenda while partners respond to new barriers, the U.S. jobs report may show the lowest unemployment rate since 2000, U.S. household net worth hits another record, and mortgage rates are on the rise.
TRUMP SIGNS OFF ON TARIFFS
President Donald Trump kicked his “America First” trade policy into high gear with apparently flexible tariffs and threats of tougher measures aimed at China. The response: The Dow Jones Industrial Average inched up, trade partners clamored for exemptions and political allies warned of unintended consequences.
The steel and aluminum tariffs were considerably softer than opponents had feared just a week ago, Jacob M. Schlesinger and Rebecca Ballhaus report. Canada and Mexico are exempted for now, Australia and other countries could follow.
Next up? Mr. Trump said the U.S. is in talks with Beijing to cut the trade deficit and promised a “reciprocal tax” on imports, though timing and details were in short supply. “We’re going to cut down the deficits [with China] one way or the other,” he said.
IT’S NO BIG DEAL
Steel and especially aluminum prices are climbing. A Platts benchmark for U.S. aluminum is up 29% since Mr. Trump announced tariffs last week and has doubled since the start of the year.
The higher costs are going to boost domestic steel and aluminum factories but sting automakers, appliance and machinery manufacturers, builders and other industries that gobble up the metals. But the big picture?
“The impact should amount to a rounding error for macroeconomic aggregates such as GDP or inflation,” said J.P. Morgan’s Michael Feroli. That estimate holds even if trade partners retaliate against the latest tariffs. The calculus would change, and the economic outlook deteriorate, if the White House intensifies its protectionist agenda and trade tensions further escalate.
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WHAT TO WATCH TODAY
The U.S. jobs report for February, out at 8:30 a.m. ET, is expected to show nonfarm payrolls rising by 205,000 and an unemployment rate of 4.0%. If economists are right, that would be the first time joblessness was at or below 4% since December 2000. (That’s way back when the Supreme Court ruled on Bush v. Gore, Florida State QB Chris Weinke won the Heisman and Madonna married Guy Ritchie.)
If the labor market is getting tighter, economic theory says wages should go up. There are only nascent signs that’s happening. Average hourly earnings climbed 2.9% in January from a year earlier, the best 12-month gain since 2009. The pace of wage growth is expected to ease in February.
TOP STORIES
CHINA REACTS
China isn’t happy with the new tariffs and tough talk.
The country’s commerce ministry promised to “take effective measures to protect China’s rights.” Chinese metal-industry trade groups called on Beijing to retaliate against U.S. imports—from stainless steel and electronics to coal and farm products, Wayne Ma, William Horobin and Doug Cameron report.
The impact of the proposed U.S. tariffs on Chinese steelmakers is expected to be small. While China produces half of the world’s steel, the vast majority isn’t exported, and shipments to the U.S. have waned since Washington imposed stiff penalties on Chinese steel products in 2011.
NOT ME, NOT ME
Elsewhere, reaction to the tariffs was muted, suggesting allies really don’t want a trade war.
South Korea’s trade, industry and energy minister, Paik Ungyu, said the country had been offered some hope by Mr. Trump’s comment that some U.S. allies could still be spared the tariffs.
Japan’s Foreign Ministry said the country would review the actions in light of World Trade Organization rules but didn’t directly threaten retaliation.
European Union trade chief Cecilia Malmstrom: “We have claimed all the time that Europe is certainly not a threat to American internal security so we expect to be excluded,” she said. The EU has threatened retaliatory measures.
FRIEND OR FOE?
While Europe’s trade minister sounded conciliatory, it’s top central banker was a bit more pointed.
European Central Bank President Mario Draghi said the tariffs raise questions about the strength of the trans-Atlantic alliance. While the immediate impact would likely be small, that could change if other countries retaliate.
“If you put tariffs against your allies, one wonders who the enemies are,” Mr. Draghi said.
ECB TIGHTENS UP
Even with tariffs and trade friction, the ECB doesn’t seem too worried about Europe’s economy right now. New forecasts from the central bank project growth at 2.4% this year, compared with 2.3% when they last released projections in December.
That outlook left Mr. Draghi and his colleagues comfortable signaling a shift toward tighter monetary policy. The ECB now appears firmly on course to phase out a historic stimulus program, Paul Hannon and Tom Fairless report.
NEWS THE WHITE HOUSE CAN USE
German exports fell in January at the fastest pace in more than half a year, in what could be the start of a downward trend should U.S. tariffs hit key segments of German industry.
The data highlight the importance of Germany’s export sector and reveal the economy’s vulnerability on trade. Last year, the U.S. was Germany’s largest export partner, sending over EUR111 billion in goods there. By contrast, Germany only imported EUR50 billion from America, Todd Buell reports.
In January the German bilateral surplus with the U.S. narrowed slightly to EUR3.5 billion from about EUR4 billion one year earlier.
CHA-CHING
U.S. household net worth is pushing further into record territory.
The value of all assets such as stocks and real estate minus liabilities like mortgage and credit-card debt rose more than $2 trillion last quarter to $98.746 trillion, Harriet Torry reports.
The caveat? The saving rate was 3.74% for 2017, down from 5.98% a year earlier and 7.19% in 2015. Previous busts—in the early and late 2000s—were preceded by periods of rising asset values and low saving, and the current wealth-to-income level surpasses that seen in the run-up to earlier recessions.
Even so, it doesn’t look like households are overleveraged right now.
MORTGAGE RATES CLIMB
One thing that could ding household finances: rising mortgage rates.
U.S. mortgage rates hit their highest level since 2014, a new challenge for a housing market already constrained by limited supplies and rising prices, Laura Kusisto reports.
The rate for a 30-year fixed-rate mortgage rose to 4.46%, the highest in more than four years and the ninth consecutive week of increases, according mortgage-finance giant Freddie Mac. At the start of the year, the average rate was 3.95%. The housing sector represents about 15% of U.S. gross-domestic product.
CHART OF THE DAY
The share of Americans working or looking for work has stabilized in recent years, after falling since the early 2000s. But the labor-force participation rate is still trending near the lowest level since the late 1970s, when the share of women entering the labor market was still on the rise, Eric Morath writes. In the past two months, the rate has edged down from a recent high touched last fall.
TWEET OF THE DAY
[wsj-responsive-sandbox id = "0" ]WHAT ELSE WE’RE READING
A life-saving antidote to opioid and heroin overdoses may inadvertently lead to more drug abuse and increase other criminal behavior. “Naloxone access may unintentionally increase opioid abuse through two channels: (1) saving the lives of active drug users, who survive to continue abusing opioids, and (2) reducing the risk of death per use, thereby making riskier opioid use more appealing,” the University of Virginia’s Jennifer Doleac and the University of Wisconsin’s Anita Mukherjee write. Because there are more opioid abusers needing to fund their drug habit, theft may also rise.
Now that spring training is in full swing, let’s remember Jose Canseco. “Specifically, we estimate whether Jose Canseco, a star baseball player in the late 1980′s and 1990′s, affected the performance of his teammates by introducing them to steroids,” The Hebrew University’s Eric Gould and Haifa University’s Todd Kaplan write. The authors found that a player’s performance increased significantly after playing with Mr. Canseco, suggesting workers learn productive skills but perhaps also unethical practices from colleagues.
A small inflow of immigrants can blunt anti-immigration sentiment. Sciences Po’s Paul Vertier and Max Viskanic track the relocation of refugees from the so-called Calais Jungle to temporary migrant centers in municipalities across France. The right-wing National Front posted smaller electoral gains in locations that hosted the centers. “Overall our results suggest that there exists a difference in perceived immigration through the media compared with actual immigration, and that the electoral reaction to actual migration seems to depend crucially on the size of the inflow.”
from Real Time Economics http://ift.tt/2DbWoCL
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